Determinants of capital structure in developing countries: An application in Turkey

Capital structure is one of the most important issues in corporate finance and a considerable number of empirical studies have been made on this topic in the developed countries. However, there has not been sufficient research in the developing countries and Turkey. This study was aim to contribute to literature on this topic. Determinants of capital structure for 66 firms (the period 1992-2002) in the manufacturing sector traded on the Istanbul Stock Exchange were tested with panel data analysis method by using firm specific variables, financial markets specific variables and macroeconomic variables. Growth rate of firms, development of banking sector, inflation and corporate tax rate have positive effect on leverage (debt/equity); profitability has negative effect on leverage. These results are consistent with theory and empirical findings. However, debt/equity ratio has been affected negatively by tangible assets/total assets ratio and positively by total government domestic debt stock/nominal gross domestic product ratio. These results are not consistent with empirical findings. Furthermore, it has supported pecking-order theory and size of firms has been effective on leverage. Keywords : Capital structure, leverage, financing choice, firm theory, panel data analysis.